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TMI Blog2006 (5) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ee did not file any details in support of the gifts. According to the learned JM the assessee was not required to do so. He held that the Assessing Officer, by reopening the assessment, wanted to make a roving enquiry into the gifts which was not permissible. In this view of the matter, he dismissed the appeal of the Department. Learned AM - According to the learned AM the assessee ought to have disclosed the capacity of the donor to make the gifts, the need for making the gift, the identity of the donor and the source of his income in the return. There was also nothing to show whether the essentials of a gift were satisfied. According to the learned AM, the very statement of the assessee that he received a gift of Rs. 28,90,000 which was included in his capital account could constitute the material for the formation of the belief that income chargeable to tax had escaped assessment. The learned AM further held that when a return is merely processed u/s 143(1)(a) the Assessing Officer does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere change of opinion it does not automatically follow that it fulfils all the requirements of the expression reason to believe . I am inclined to hold that the reasons recorded in the present case by the Assessing Officer for reopening the assessment are a mere pretence, an excuse to enquire into the gifts received by the assessee, without any material or evidence coming into his possession after he processed the return u/s 143(1)(a). The learned AM, with respect, in paragraph 2 of his dissent, seems to have referred to facts which were gathered by the Assessing Officer post-notice u/s 148. These facts were not present before) the Assessing Officer before the issue of the notice. The case thus also does not satisfy the legal requirement laid down by the Supreme Court in M.P. Industries Ltd v. ITO [ 1965 (4) TMI 23 - SUPREME COURT] that a notice u/s 148 cannot be issued merely to make fishing inquiries into the return. Thus, I answer the first point of difference referred to me in the negative, that is to say, that the Assessing Officer did not have reason to believe that income of the assessee chargeable to tax has escaped assessment. Consequently, the third point of difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, learned Assessing Officer wrongly invoked the provisions of section 147 of the Income-tax Act and consequently, the notice issued under section 148 of the Income-tax Act is also illegal, without jurisdiction and uncalled for. There exists no such circumstances which authorizes the learned Assessing Officer to initiate the proceeding under section 147 read with section 148 of the Act. 3. That without prejudice to above, the notice issued under section 148 is grossly defective and no assessment proceedings can taken place on the basis of said notice. 4. That without prejudice to above grounds of appeal, the assessment order framed is bad in law since the reasons recorded for reassessment proceedings have never been communicated to the assessee." 3.3 Before the learned CIT(A) it was pointed out that the assessee duly filed the balance-sheet along with the return wherein the receipt of gift of Rs. 28,90,000 was shown and the Assessing Officer processed the return on the basis of the said balance-sheet. In this regard the further submission of the assessee, as reproduced in para 2.2 of the order of learned CIT(A) was as under: "It was simply a fact which was eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the requirements of law, specially when it comes to taking action under section 147/148, have to be met with in letter and spirit. The Assessing Officer would do well to bear this in mind in future. In this case, there is no doubt that the Assessing Officer has acted illegally and in an unwarranted manner in issuing notice under section 148 when he had no reason to believe that income has escaped assessment. Notice under section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above the assessment order dated 30-3-2000 is annulled as the same is bad in law and is ab initio null and void These grounds are decided in favour of the appellant." 4. Before us the learned DR submitted that the Assessing Officer had recorded detailed reasons and issued notice under section 148 and in view of the reasons recorded, the issuance of notice under section 148 was fully justified. According to him, since the assessee had not given details of gifts received, the conclusion of the Assessing Officer that income had escaped assessment was legally correct. According to him, the Assessing Officer has wide power to reopen assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000. Thus it is undisputed that the assessee had given the narration regarding receipt of gift of Rs. 28,90,000 while filing the original return. The return was processed under section 143(1)(a) on 22-2-1996. 6.1 The reasons recorded by the Assessing Officer for reopening the assessment have been reproduced in para 2.1 of the order of learned CIT(A). Regarding the receipt of gift of Rs. 28,90,000 the Assessing Officer has observed as under: "The assessment under section 143(1) has been completed on 22-2-1996, the balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P.) Ltd. from which he has shown interest income of Rs. 2,40,838. There are also house withdrawals from the party and it is not shown how these withdrawals have been invested. The assessee has received interest from Vipual Motors and Alfa Automobiles. The details of the same have not been filed. The assessee is having salary from Sadar Bazar Leasing (P.) Ltd. for which he has invested huge amounts. The assessee has shown drawing at Rs. 2,55,150 which mean that he has made certain inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l regarding receipt of gift. Thus, for want of details of gifts the Assessing Officer had believed that the income of the assessee had escaped assessment. In the reasons recorded other transactions have also been mentioned but for those transactions also, the proceedings for reassessment have been initiated for want of details. 6.4 The contention of the assessee before us was that the assessee had disclosed fully and truly all material facts and that on the basis of the same material if notice for reassessment is issued, then it would amount mere change of opinion. We do find force in this submission. 6.5 In the case of Jindal Photo Films Ltd v. Dy. CIT [1998] 234 ITR 170 (Delhi), it was ruled out that a mere change of opinion, even under the new law i.e., in view of amendment with effect from 1-4-1989 under section 147, the words "reason to believe" have been continued and in view of this continuance the requirement prior to the law as on 1-4-1989 has not been dispensed with. The position was further explained by the Hon'ble Delhi High Court in the case of Kelvinator of India Ltd. In that case the following observation was made by the Hon'ble Court: "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the petitioner was incorporated as a limited company for the purpose of establishment, maintenance and working of telephone services for various authorities and for effecting the same, licenses were granted by the Government of India initially for five years and the same was subsequently extended from time to time. The petitioner was paying license fee of Rs. 101 in terms of license from financial years 1986-87 to 1992-93, which was subsequently enhanced to Rs. 800 and further to Rs. 900 with effect from assessment year 1995-96. A return of income for assessment year 1994-95 was filed and the sum of Rs. 1,24,85,60,000 was claimed as license fee. There was no such claim for preceding year. Intimation under section 143(1) of the Act was given to the petitioner. Subsequently, a notice under section 148 of the Act was issued in response to which the assessee was required to file the return. The action of the Assessing Officer for issuing notice under section 148 on the ground that he had reason to believe that petitioner's income for concerned year 1994-95 had escaped assessment within the meaning of section 147 was challenged through a writ petition. The Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings which course is not justified. 6.9 In view of the above decisions, the position is clear that assessment cannot be reopened merely on the basis of change of opinion. So far as the present matter is concerned, the Assessing Officer had taken a different view on the same material i.e., receipt of gifts, which will tantamount to change of opinion only and in view of the above decisions assessment cannot be reopened on the basis of mere change of opinion. Accordingly, we do not find any reason to interfere in the order of learned CIT(A) and the same is upheld by us. 7. In the result, revenue's appeal stands dismissed. Per B.R. Jain, Accountant Member. 1. I am unable to agree with my learned brother and therefore proceed to write a separate order. The assessment in this case was reopened after recording reasons as under:- "The assessment under section 143(1) has been completed on 22-2-1996. The balance sheet of the assessee reveals that the assessee has received a gift of Rs. 28,90,000 for which no details have been filed. The assessee has given loan to Sadar Bazar Leasing (P.) Ltd. from which he has shown interest income of the party and it is not shown how these wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs the assessee was given sufficient opportunity to substantiate the capacity of the donor and the genuineness of the gift. As the requisite information was not forthcoming from the assessee, the Assessing Officer requisitioned information about the donor from Bank of America where the donor maintained a NRE Account. From the copy of passport supplied, the Assessing Officer observed that the photograph of the donor does not match with the copy of photograph contained in the information provided by the assessee. In enquiry proceedings the respondent-assessee was not able to recognize the donor from his photograph. The Assessing Officer also noticed from the bank account of the donor that he is a professional donor and has made gifts aggregating to more than Rs. 3 crores in the year under consideration to more than 50 persons. Few names of such donees to whom alleged gifts have been made by the same donor are also stated in the assessment order as under:- S. No. Name Amount Cheque No. & Date 1. Smt. Suneeta Gupta Rs. 10,00,000 009331 11-3-1994 2. Shri CB Gupta Rs. 2,00,000 101182 18-4-1994 3. S. Harbhajan Singh Rs. 5,00,000 007155 4-3-1994 4. Smt. Ganga Devi R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts.' 3.1 Keeping in view the above mentioned observations I have no hesitation in holding that while the Assessing Officer might have had a faint reason to suspect that income has escaped assessment, it cannot be said that he had reason to believe that the income has escaped assessment, I cannot over-emphasise that the requirements of law, specially when it comes to taking action under section 147/148 have to be met with in letter and spirit. The Assessing Officer would do well to bear this in mind in future. In this case, there is no doubt that the Assessing Officer has acted illegally and in an unwarranted manner in issuing notice under section 148 when he had no reason to believe that income has escaped assessment. Notice under section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above, the assessment order dated 30-3-2000 is annulled as the same is bad in law and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to reopen the proceedings. 7. It is to be noted that substantial changes have been made to section 143(1) with effect from 1-6-1989. Section 143(1) as it stood between 1-4-1989 and 31-5-1999 required the Assessing Officer to send an intimation whether or not any adjustment has been made as provided under first proviso to that section notwithstanding the fact that no tax or interest is due from the assessee. The first proviso to section 143(1)(a) allowed the department to make certain adjustments in the income or loss declared in the return of income. They were as follows: "(a) an arithmetical error in the return, accounts and documents accompanying it were to be rectified. (b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents was, prima facie admissible, but which was not claimed in the return was to be allowed. (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed." From the above, it is evident that, what was permissible was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or to suppose that income had escaped assessment, it can be said to have reason to believe that income has escaped assessment. In the substituted section 147 as applicable in the year under consideration if the Assessing Officer for whatever reason has reason to believe that income had escaped assessment, it shall confer jurisdiction to reopen the assessment. At the initial stage, what is required is "reason to believe" but not established fact of escapement of income. Whether the material would conclusively prove the escapement is not the concern at the initiation stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. This is so stated by the Hon'ble Delhi High Court in the case of MTNL with reference to the judgment of the Supreme Court in the case of ITO v. Selected Dalubrand Coal Co. (P.) Ltd. [1996] 217 ITR 597 and also in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is to make a true and full disclosure of the primary and material facts at the time of original assessment. This case also supports the decision taken by the assessing authority since the respondent has not made true and full disclosure of material facts and thus there was a definite reason to believe that income of the assessee has escaped assessment. The Ld. CIT(A), however, appears to have shown over enthusiasm in saying that the Assessing Officer only had reason to suspect that income has escaped assessment and held that the Assessing Officer has acted illegally and in unwarranted manner in issuing notice under section 148 of the Act. There was also no material with the Ld. CIT(A) to hold that the Assessing Officer has acted in an arbitrary manner in issuing notice under section 148 of the Act for he has reason to form a belief that income chargeable to tax has escaped assessment even though there was primary material that from the mere accounting entry in the balance sheet enclosed with the return a reasonable person could have formed a requisite belief as entertained by the assessing authority. 11. The respondent-assessee also placed reliance on various judgments as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiating action under section 147/148 of the Act and the Ld. CIT(A) is found to have erred in annulling the assessment as bad in law by stating the same to be void ab initio. I, therefore, set aside his decision and restore the decision taken by the assessing authority. 13. In the result, the appeal of revenue stands allowed. Reference Under Section 255(4) Of The IT Act, 1961 30th Nov., 2005 Since there is difference of opinion between the two members, we hereby refer the following questions for the opinion of the Hon'ble President: "(1) Whether, on the facts and in the circumstances of the case and on the basis of material available before Assessing Officer, at the time of initiation of proceedings under section 147 of the Act, the Assessing Officer was legally justified in having reason to believe that income of the assessee, chargeable to tax, has escaped assessment? (2) Whether the action of the Assessing Officer to reassess the income of the assessee, in the facts and on the circumstances of this case, was based merely on the change of opinion and was, therefore, bad in the eye of law? (3) Whether, on the facts and in the circumstances of the case and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. An appeal was taken to the CIT(A) against the reassessment and it was challenged on various grounds including the ground that it was without jurisdiction. It was also pointed out that the assessee was not required to file any details in support of the gifts along with the return of income and, therefore, the reason recorded by the Assessing Officer to the effect that the assessment was being reopened since the assessee did not furnish any details in support of the gift along with the return was not germane to the issue of the notice under section 148. The CIT(A) accepted the assessee's contention and held that though there may be "reason to suspect" that income had escaped assessment there was no "reason to believe" so and that the assessment was reopened merely to conduct roving enquiries on the basis of vague suspicions. He accordingly annulled the reassessment as being ab initio void. 4. The Department preferred an appeal to the Tribunal. The learned JM, who wrote the leading order, after reproducing the reasons recorded by the Assessing Officer to reopen the assessment, held that the assessee had disclosed the gift in the return, that there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully and truly. According to the learned AM the assessee ought to have disclosed the capacity of the donor to make the gifts, the need for making the gift, the identity of the donor and the source of his income in the return. There was also nothing to show whether the essentials of a gift were satisfied. According to the learned AM, the very statement of the assessee that he received a gift of Rs. 28,90,000 which was included in his capital account could constitute the material for the formation of the belief that income chargeable to tax had escaped assessment. The learned AM further held that when a return is merely processed under section 143(1)(a) the Assessing Officer does not form any opinion on the facts disclosed since he cannot conduct any enquiry and all he can do is to make the statutory adjustments to the income returned and nothing else and further the presence of the assessee is not required nor any document or evidence in support of the return is required to be produced. Thus, according to the learned AM, if no opinion can be said to have been formed by the Assessing Officer while processing the return, without any application of mind that would itself confer jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. I agree with the learned CIT(DR) as well as the learned AM to the extent they say that the reassessment cannot be invalidated on the ground of a mere change of opinion, since the return was never brought to "assessment" under section 143(3) but was merely "processed" under section 143(1)(a) without any enquiry and without hearing the assessee and at that stage there was no question of the Assessing Officer forming any opinion about the taxability of the NRI gifts. The distinction between the processing or accepting a return under section 143(1)(a) and making an assessment under section 143(3) has been brought out by the Hon'ble Delhi High Court in Mahanagar Telephone Nigam Ltd.'s case. In the light of the binding judgment, and with respect, I hold that the reassessment cannot be said to have been prompted by a mere change of opinion. I may add that in Kelvinator of India Ltd.'s case the Full Bench of the Hon'ble Delhi High Court was not concerned with an "intimation" under section 143(1)(a), but was concerned with a regular assessment order passed under section 143(3). It was therefore held that "a presumption can be raised that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be held in good faith, that it cannot be merely a pretence and that though the court cannot examine the sufficiency of the reasons for the formation of the requisite belief it can examine whether the reasons recorded had a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. There is no need to multiply authorities on the meaning of the expression "reason to believe". 9. Now when section 147 was substituted with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act, 1987 the Legislature sought to do away with the expression "reason to believe" and confer power to reopen an assessment if the Assessing Officer "for reasons to be recorded by him in writing, is of opinion" that income chargeable to tax had escaped assessment. But there were representations against the proposal and so by Direct Tax Laws (Amendment) Act, 1989, which also took effect from 1-4-1989, the original expression was restored in the section. The representations were to the effect that the omission of the expression "reason to believe", which had been explained in a numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, is "a fortiori" because an attempt was made to drop the expression but bowing to representations it was restored expressly acknowledging that the expression has been interpreted in a particular manner by courts and to do away with the same would amount to conferring arbitrary powers upon the Assessing Officer to reopen the assessments. 10. The learned CIT(DR) would however contend that the reintroduction of the expression "reason to believe", as explained by the circular is only to ensure that assessments will not be reopened on a mere change of opinion and that in the present case the assessment not having been reopened on a mere change of opinion - there being no formation of an opinion in the first place when the return was processed under section 143(1)(a) - no other ground for invalidating the notice under section 148 was available to the assessee. This argument, with respect, overlooks several aspects. First, though the present case is not a case of a change of opinion, as noted earlier it must still conform to the basic requirement of the section, viz., that there should be "reason to believe" and that belief should not be a pretence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instances of what cannot be held to be "reason to believe". A change of opinion on the same facts and legal position is only one instance of what is not "reason to believe". Therefore, merely because the present case for whatever reason is not covered by the yardstick of a mere change of opinion it does not automatically follow that it fulfils all the requirements of the expression "reason to believe". 12. Thirdly, even though no opinion was formed by the Assessing Officer when he processed the return under section 143(1)(a) and therefore it cannot be a case of a mere change of opinion unsubstantiated by fresh facts or change in law coming to his notice, still an attempt to probe the return further on the part of the Assessing Officer is certainly not taken in by the expression "reason to believe". The consequences of condoning such an attempt would be grave. I am not to be understood as holding that despite fresh facts or material or information, or a change in the legal position, the Assessing Officer cannot reopen the assessment where the return had only been processed under section 143(1)(a). There has to be a distinction between cases w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer not recording a detailed analysis of the materials produced to show why and how he has come to accept the claim or contention of the assessee in the order of regular assessment passed under section 143(3) and the case of the statute forbidding the Assessing Officer from enquiring into the claims and contentions of the assessee and mandating him to accept the return as it is (subject to very limited adjustments allowed by the statute), in my humble understanding, do not manifest any substantial difference so far as the power to reopen the assessment is concerned. In both the cases, what is permitted is a notice to reopen the assessment which should be based on fresh facts or evidence or material which has come to the possession of the Assessing Officer or a change in the legal position brought to his notice after the passing of the regular assessment order under section 143(3) or the passing of the intimation on the processing of the return under section 143(1)(a). In the absence of such a condition, the reassessment notices in both the cases would be without jurisdiction. 13. In the light of the above discussion, if I look at the reasons recorded by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is would mean that the provisions of section 147 would be rendered a substitute for section 143(2), an object which that section was not intended to achieve. It would also permit the Assessing Officer to accept the return under section 143(1)(a) in the hope that if he at any time in future wanted to verify and probe into the same he can always rely on section 147 and section 148, a situation which would tend to make a mockery of a legal provision which can be invoked only after strictly fulfilling the stringent conditions precedent. 14. In an early case decided by the Madras High Court in the Presidency Talkies Ltd. v. First Additional ITO [1954] 25 ITR 447 it was observed that the object and purpose behind the requirement of recording reasons for reopening the assessment and communicating them to the assessee were to "safeguard the interests of the assessee against any hasty action on the part of the Income-tax Officer under section 34 or an action without any justification". The Supreme Court while approving the judgment of the Madras High Court on a different point in the case of S. Narayanappa observed that the reasons recorded must be held in good faith and shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art, that judgment has nowhere held that the requirement of "reason to believe" can be done away with. The judgment reinforces my view that a reassessment prompted by a mere change of opinion is only one manifestation - one "avatar" - of what is not "reason to believe" and there are several other manifestations (or "avatars") of what is not "reason to believe" which have to be dealt with on their own terms. 16. For all the above reasons, I answer the first point of difference referred to me in the negative, that is to say, that the Assessing Officer did not have "reason to believe" that income of the assessee chargeable to tax has escaped assessment. Consequently, the third point of difference is answered in the affirmative, that is to say, that the CIT(A) was justified in holding that the reopening of the assessment was not valid and therefore, the reassessment made was void ab initio and bad in the eyes of law. The second question is answered in the negative, that is to say that the reopening was not based on a mere change of opinion. 17. The case will now be placed before the Division Bench for passing orders in confo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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